Page 1 of 2 Beijing takes on Latin America
By Evan Ellis
Since 2008, the People's Republic of China (PRC) has moved forward with a
series of large aid and investment deals, indicating that the PRC is raising
its stake in Latin America to a new level [1].
The impact of China's expanding commitment in Latin America extends far beyond
the PRC's immediate goals of securing access to Latin American markets and
reliable sources of primary products at favorable prices. The implications of
this trend can be
understood in terms of four overlapping effects:
The interaction is transforming the physical, economic, educational and social
structure of the region.
It is enabling the survival and spread of regimes oriented against the United
States, Western-style democracy and economic models.
It is enabling the emergence of Brazil as a regional powerbroker.
It is undermining the United States as a source of political and economic
influence in the region, as well as US options for regional engagement.
While China is transforming Latin America through such effects, this does not
imply that they are the result of deliberate, primary objectives of Chinese
foreign policy towards the region.
The mechanism by which Latin America's expanding relationship with the PRC is
transforming the region has as much to do with expectations by Latin American
investors of future business with China. Inspired by expectations of selling
to, or importing from China, Latin Americans are investing to improve their
infrastructure, including the expansion and modernization of Pacific ports such
as Ensenada in Mexico, Buenaventura in Colombia, Manta in Ecuador, Peru's
Callao and Chile's Iquique, among others.
The desire to facilitate commerce with China has also breathed new life into
contemplated but long unfunded infrastructure projects to connect the continent
to its Pacific coast, including the Manta-Manaus (Brazil) corridor,
inter-oceanic corridors to Paita and Ilo in Peru, and the bi-oceanic corridor
connecting Sao Paolo in southern Brazil with the port of Iquique.
Beyond physical infrastructure, the belief held by students in the region that
China is the wave of the future has driven the establishment of China-oriented
programs throughout Latin American universities, as well as a wealth of
offerings for learning Mandarin, from private institutes to university language
programs, including the establishment of 18 officially sanctioned Confucius
Institutes in the region.
Chinese engagement is also shaping the politics of the region. One such impact
is the contribution of Chinese aid and investment in the survival of the "caudillo
[political-military leader] socialist block" (Venezuela, Ecuador and Bolivia).
The PRC has been extremely cautious to avoid associating itself with the
anti-US proclamations of leaders such as President Hugo Chavez in Venezuela.
Nonetheless, the PRC benefits from the policies of these regimes insofar as
their disruption of relationships with Western companies, and the personalistic
character of their regimes creates opportunities for Chinese companies to gain
access to their resources and deepen penetration of their markets.
The principal example of how China has enabled "caudillo socialism" in the
region is its relationship with the Chavez regime in Venezuela. As Chavez has
consolidated control of the petroleum industry and other sectors of the
Venezuelan economy, China has played an increasingly important role in buying
Venezuelan oil, working the oilfields and loaning money to the Chavez regime.
Over the past two years, China Development Bank has loaned US$8 billion to
Venezuela, to be repaid in future oil deliveries, and is currently negotiating
an additional loan of up to $4 billion. Although initially intended for
Venezuelan infrastructure projects, these funds arguably helped the Chavez
regime to meet its internal and external commitments when oil prices fell from
$140 per barrel to less than $40. China National Petroleum Company (CNPC) has
expanded its Venezuelan oil operations while Western companies pulled out, and
in September 2009 announced its intention to invest an additional $16 billion.
In Ecuador, like Venezuela, China has helped to maintain the solvency of that
country's anti-US regime, issuing a $1 billion loan, which helped the
government of Rafael Correa to manage a liquidity crisis associated with the
repayment of foreign debt obligations, as well as a $2 billion 1.5 gigawatt
hydroelectric plant, 90% self-financed by the Chinese company that performs the
work.
The Chinese consortium Andes Petroleum is a key investor in Ecuador's oil
sector, and has become increasingly important as other companies have pulled
out in response to the Rafael Correa administration's move to force them to
re-negotiate the terms of their concessions. Even in Bolivia, where the Chinese
have proceeded cautiously, the state petroleum company YPFB is pursuing a
strategic partnership with CNPC for the investment and technical expertise that
it requires to maintain Bolivian gas production.
In addition to contributions as a resource provider and customer, China is also
playing an expanding role as an alternative provider of technology and military
goods. China has helped Venezuela to create a factory to assemble drilling rigs
to develop its oil, as well as other joint ventures for producing cars and cell
phones. The PRC also launched a telecommunications satellite for Venezuela in
2008, and has become an important telecom infrastructure provider. In addition,
the PRC sells the country increasingly sophisticated military end items,
including air surveillance radars and military aircraft [2].
Ecuador and Bolivia have followed Venezuela's lead with respect to military
purchases from the PRC. Ecuador, which had previously leased two MA-60
transport aircraft from the Chinese in 2007, is negotiating to purchase four
more, as well as taking delivery of two Chinese radars for evaluation, and
purchasing four more, to be delivered by the first quarter of 2011.
Bolivia, which previously received trucks, small boats and night-vision goggles
from the PRC, is now working with them to launch a satellite and purchasing six
K-8 aircraft for counter-narcotics missions after being denied access to US and
European planes.
In addition to providing resources, technical support and military goods that
have contributed to the survival of the "caudillo socialist block", the PRC has
also been contributing to Brazil's ascendancy as a regional power broker.
Brazilian economic performance has been driven, in part, by its export-oriented
iron and soy industries, for which China is a key customer.
Indeed, the global recession emphasized and magnified the importance of China
to Brazil. While Brazilian exports to the United States fell 37.8% in the first
quarter of 2009, exports to the PRC increased by 62.7% thanks in part to a
Chinese stimulus package that included $740 billion in infrastructure projects,
thus maintaining high levels of Chinese demand for factor inputs such as iron,
purchased from Brazilian suppliers such as CVRD.
Consequently, in the first half of 2009, China became Brazil's number one
export destination. China has also emerged as a key financier as Brazil reaches
out for the $174 billion that it requires to develop newly discovered deepwater
oil reserves in the Campos and Santos basins. In discussing a $10 billion loan
from China Development Bank to Brazil, the president of Petrobras, Sergio
Gabrielli, noted, "There isn't [sic] someone in the US government that we can
sit down with and have the kinds of discussions we're having with the Chinese".
The PRC is also an increasingly important partner in technology transfer for
Brazil. The two nations are pursuing a range of important joint ventures,
including joint production of mid-sized business jets, the China-Brazil Earth
Research Satellite (CBERS) program and other space cooperation programs.
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